Fidelity D & D Bancorp(FDBC) - 2025 Q2 - Quarterly Results

Executive Summary & Performance Highlights Fidelity D & D Bancorp, Inc. reports strong Q2 and year-to-date 2025 financial performance, with significant growth in net income and EPS Second Quarter 2025 Financial Highlights Q2 2025 net income rose 40% to $6.9 million, with diluted EPS at $1.20, driven by increased net interest and non-interest income Q2 2025 Financial Performance Summary | Metric | Q2 2025 | Q2 2024 | Change ($M) | Change (%) | | :--------------------- | :------ | :------ | :---------- | :--------- | | Net income | $6.9 M | $4.9 M | $2.0 M | 40% | | Diluted EPS | $1.20 | $0.86 | $0.34 | 39.5% | - The increase in net income was primarily driven by a $2.8 million increase in net interest income and a $0.8 million increase in non-interest income[3] - Partially offsetting factors included a $1.1 million increase in non-interest expense and a $0.6 million increase in the provision for income tax[3] Year-to-Date 2025 Financial Highlights Year-to-date 2025 net income increased 29% to $12.9 million, with diluted EPS at $2.23, reflecting strong interest and non-interest income growth Year-to-Date 2025 Financial Performance Summary | Metric | YTD 2025 | YTD 2024 | Change ($M) | Change (%) | | :--------------------- | :------- | :------- | :---------- | :--------- | | Net income | $12.9 M | $10.0 M | $2.9 M | 29% | | Diluted EPS | $2.23 | $1.73 | $0.50 | 28.9% | - The year-to-date net income increase stemmed from a $4.9 million increase in net interest income and a $1.1 million increase in non-interest income[4] - These gains were partially offset by a $2.0 million increase in non-interest expense and a $1.0 million increase in the provision for income tax[4] CEO Commentary CEO Daniel J. Santaniello lauded strong Q2 and YTD performance, crediting disciplined loan growth, enhanced yields, and robust capital position - Second quarter 2025 net income increased 40% over last year's second quarter to $6.9 million, with diluted earnings per share rising to $1.20[5] - Performance was driven by a 19% increase in net interest income, reflecting disciplined loan portfolio expansion and enhanced yields, as well as a 16% rise in non-interest income[5] - Year-to-date, net income grew 29% to $12.9 million, supported by a strong relationship-based deposit strategy and prudent expense management[6] Shareholders' equity increased 7%, strengthening the capital position for future growth[6] Consolidated Second Quarter Operating Results This section details Fidelity D & D Bancorp's Q2 2025 operating results, covering net interest income, credit loss provisions, and non-interest items Net Interest Income Q2 2025 net interest income grew 19% to $17.9 million, driven by higher interest income from increased assets and improved FTE yield Q2 Net Interest Income Performance | Metric | Q2 2025 ($M) | Q2 2024 ($M) | Change ($M) | Change (%) | | :---------------------- | :----------- | :----------- | :---------- | :--------- | | Net interest income | $17.9 | $15.1 | $2.8 | 19% | | Interest income | $29.8 | $26.0 | $3.7 | 14.2% | | Interest expense | $11.8 | $10.9 | $0.9 | 8.3% | - The increase in interest income was primarily due to a $213.6 million increase in the average balance of interest-earning assets and a 19 basis point increase in FTE yield[8] - FTE net interest margin increased to 2.92% for Q2 2025 from 2.71% for Q2 2024, mainly driven by growth in higher yielding taxable commercial loans[9] Provision for Credit Losses Q2 2025 loan loss provision increased to $300 thousand due to higher charge-offs, while unfunded commitment provision decreased Q2 Provision for Credit Losses | Metric | Q2 2025 ($ thousands) | Q2 2024 ($ thousands) | Change ($ thousands) | | :-------------------------------------- | :-------------------- | :-------------------- | :------------------- | | Provision for credit losses on loans | $300 | $275 | $25 | | Provision for unfunded commitments | $20 | $140 | ($120) | - The increase in loan loss provision was due to $155 thousand in higher net charge-offs and a higher average total loan balance[10] - The decrease in provision for unfunded commitments was due to lower levels of unfunded commitments during the quarter, specifically commercial construction commitments, due to increased utilization[10] Non-Interest Income Total non-interest income for Q2 2025 rose 16% to $5.4 million, driven by higher trust fees, BOLI benefits, and service charges Q2 Non-Interest Income Performance | Metric | Q2 2025 ($M) | Q2 2024 ($M) | Change ($M) | Change (%) | | :-------------------- | :----------- | :----------- | :---------- | :--------- | | Total non-interest income | $5.4 | $4.6 | $0.8 | 16% | - Key contributors to the increase included $0.2 million in trust fees, a $0.2 million BOLI death benefit, $0.2 million in loan service charges, and $0.1 million in interchange fees[11] Non-Interest Expenses Non-interest expenses increased 8% to $14.7 million in Q2 2025, primarily due to higher salaries, premises, and advertising costs Q2 Non-Interest Expenses | Metric | Q2 2025 ($M) | Q2 2024 ($M) | Change ($M) | Change (%) | | :------------------ | :----------- | :----------- | :---------- | :--------- | | Non-interest expenses | $14.7 | $13.6 | $1.1 | 8% | - Primary increases were in salaries and benefits expense ($0.8 million), premises and equipment expense ($0.2 million), and advertising expense ($0.2 million)[12] - These increases were partially offset by a $0.2 million decrease in professional services[12] Provision for Income Taxes Q2 2025 income tax provision increased by $0.6 million, directly correlating with a $2.6 million rise in pre-tax income - Provision for income taxes increased by $0.6 million in Q2 2025 compared to Q2 2024[13] - This increase was primarily due to a $2.6 million increase in income before taxes[13] Consolidated Year-To-Date Operating Results This section details Fidelity D & D Bancorp's year-to-date 2025 operating results, covering key income and expense components Net Interest Income Year-to-date net interest income increased $4.9 million to $35.0 million, driven by higher interest income and improved FTE yield Year-to-Date Net Interest Income Performance | Metric | YTD 2025 ($M) | YTD 2024 ($M) | Change ($M) | Change (%) | | :---------------------- | :------------ | :------------ | :---------- | :--------- | | Net interest income | $35.0 | $30.1 | $4.9 | 16.3% | | Interest income | $58.1 | $51.7 | $6.4 | 12.4% | | Interest expense | $23.1 | $21.6 | $1.5 | 6.9% | - Interest income growth was primarily due to a $181.0 million increase in average interest-earning assets and a 20 basis point increase in FTE yield[14] - FTE net interest margin increased by 21 basis points to 2.91% for YTD 2025, as yields earned on loans and leases outpaced rates paid on interest-bearing deposits[15] Provision for Credit Losses Year-to-date loan loss provision rose to $755 thousand due to higher charge-offs, while unfunded commitment provision became a net benefit Year-to-Date Provision for Credit Losses | Metric | YTD 2025 ($ thousands) | YTD 2024 ($ thousands) | Change ($ thousands) | | :-------------------------------------- | :--------------------- | :--------------------- | :------------------- | | Provision for credit losses on loans | $755 | $400 | $355 | | Provision for unfunded commitments | ($65) (net benefit) | $90 | ($155) | - The increase in loan loss provision was due to $215 thousand in higher net charge-offs and a higher average total loan balance[16] - The decrease in provision for unfunded commitments was due to lower growth in unfunded commitments from increased utilization, specifically commercial construction commitments[16] Non-Interest Income Year-to-date non-interest income increased 12% to $10.3 million, driven by higher fees and a BOLI death benefit, despite securities losses Year-to-Date Non-Interest Income Performance | Metric | YTD 2025 ($M) | YTD 2024 ($M) | Change ($M) | Change (%) | | :-------------------- | :------------ | :------------ | :---------- | :--------- | | Total non-interest income | $10.3 | $9.2 | $1.1 | 12% | - Key drivers included $0.3 million higher fees from trust fiduciary activities, $0.2 million more in interchange fees, a $0.2 million BOLI death benefit, and an increase of $0.2 million in service charges on commercial loans[17] - Gains of $0.5 million on the sale of a commercial loan and $0.3 million from the sale of a property were offset by $0.8 million in losses recognized on the sale of securities[17] Non-Interest Expenses Year-to-date non-interest expenses rose 7% to $29.3 million, primarily due to increased salaries, advertising, and premises costs Year-to-Date Non-Interest Expenses | Metric | YTD 2025 ($M) | YTD 2024 ($M) | Change ($M) | Change (%) | | :------------------ | :------------ | :------------ | :---------- | :--------- | | Non-interest expenses | $29.3 | $27.3 | $2.0 | 7% | - Salaries and benefits expense increased $1.3 million due to an increase in bankers, group insurance costs, and banker incentives[18] - Other increases included $0.5 million in advertising and marketing expenses and $0.5 million in premises and equipment expense[18] - These increases were partially offset by $0.3 million less in professional services expense[18] Provision for Income Taxes Year-to-date income tax provision increased $1.0 million, driven by higher pre-tax income and reduced tax credits - Provision for income taxes increased by $1.0 million during YTD 2025 compared to YTD 2024[19] - This was primarily due to a $3.9 million increase in income before taxes and $0.2 million less in tax credits[19] Consolidated Balance Sheet & Asset Quality Overview This section provides an overview of Fidelity D & D Bancorp's balance sheet, capital adequacy, and asset quality as of June 30, 2025 Balance Sheet Changes Total assets grew $114.0 million to $2.7 billion, funded by a $100.0 million increase in liabilities, primarily from deposit growth Balance Sheet Summary at Period End | Metric | June 30, 2025 ($B) | Dec 31, 2024 ($B) | Change ($M) | Change (%) | | :-------------------- | :----------------- | :---------------- | :---------- | :--------- | | Total assets | $2.7 | $2.6 | $114.0 | 4.4% | | Total liabilities | $2.48 | $2.38 | $100.0 | 4.2% | | Total deposits | $2.44 | $2.34 | $94.5 | 4.0% | - Asset growth resulted from $82.1 million in cash and cash equivalents and $37.9 million in the loans and leases portfolio[20] - Deposit growth of $94.5 million was utilized to fund loan growth and increase interest-bearing cash balances, with increases across money market, interest-bearing checking, time deposits, savings, and non-interest-bearing checking accounts[21][22] Shareholders' Equity and Capital Adequacy Shareholders' equity increased 7% to $217.9 million, driven by retained earnings and improved AOCI, maintaining a strong capital position Shareholders' Equity Summary | Metric | June 30, 2025 ($M) | Dec 31, 2024 ($M) | Change ($M) | Change (%) | | :-------------------------- | :----------------- | :---------------- | :---------- | :--------- | | Shareholders' equity | $217.9 | $204.0 | $13.9 | 7% | - The increase was caused by $8.3 million higher retained earnings from net income and a $4.9 million (after tax) improvement in accumulated other comprehensive income, partially offset by $4.7 million in cash dividends[23] - The Company remains well capitalized, with Tier 1 capital at 9.16% of total average assets, total risk-based capital at 14.72%, and Tier 1 risk-based capital at 13.57% as of June 30, 2025[23] Asset Quality Asset quality improved significantly, with non-performing assets decreasing to 0.13% of total assets, despite a slight rise in net charge-offs Asset Quality Ratios | Metric | June 30, 2025 | Dec 31, 2024 | Change (bps) | | :---------------------------------- | :------------ | :----------- | :----------- | | Total non-performing assets to total assets | 0.13% | 0.30% | -17 | | Past due and non-accrual loans to total loans | 0.41% | 0.71% | -30 | | Net charge-offs to average total loans | 0.05% | 0.03% | +2 | Company Information This section provides an overview of Fidelity D & D Bancorp, Inc., its operations, services, and community engagement About Fidelity D & D Bancorp, Inc. Fidelity D & D Bancorp, Inc. operates 21 full-service offices, offering comprehensive banking and wealth management services, with strong community involvement - Operates 21 full-service offices across Lackawanna, Luzerne, Lehigh, and Northampton Counties, and a Wealth Management Office in Schuylkill County[25] - Provides digital banking (online, mobile app, Client Care Center), Wealth Management & Brokerage Services, a Mortgage Center, and a full suite of personal and commercial banking products[25] - Demonstrated community commitment in 2024 with over 5,960 hours of volunteer time and over $1.3 million in donations to non-profit organizations[25] Non-GAAP Financial Measures This section explains the Company's use of non-GAAP financial measures to provide supplementary insights into its operating performance Explanation and Use Non-GAAP measures, like FTE adjustments, provide supplementary insights into operating performance and trends, used internally but not replacing GAAP - Non-GAAP financial measures are used to provide information useful in understanding operating performance and trends, and to facilitate comparisons with other financial institutions[26] - Management uses these measures internally to assess and better understand underlying business performance and trends related to core business activities[26] - Interest income is adjusted to a fully-taxable equivalent (FTE) basis, using a 21% corporate federal tax rate, to allow for uniform comparison among yields on interest-earning assets[27] Forward-Looking Statements This section outlines the forward-looking statements disclaimer, detailing various risks and uncertainties that could impact actual financial results Disclaimer and Risk Factors Forward-looking statements are subject to known and unknown risks, including economic conditions, interest rate volatility, and regulatory changes - The press release contains forward-looking statements that may involve known and unknown risks, uncertainties, and other factors which may cause actual results to differ materially[28] - Risk factors include local, regional, and national economic conditions, inflation, interest rate volatility, securities markets and monetary fluctuations, regulatory changes (e.g., Basel III), governmental policies, litigation, accounting policy changes, and competition[29] - Additional risks include technological changes, cybersecurity breaches, acquisitions, assumptions underlying loan loss reserves, acts of war or terrorism, and the potential for incorrect analyses or unsuccessful strategies[32] Financial Statements and Supplementary Data This section presents unaudited consolidated financial statements, including balance sheets, income statements, key ratios, and non-GAAP reconciliations Unaudited Condensed Consolidated Balance Sheets Unaudited condensed consolidated balance sheets detail financial positions, assets, liabilities, and equity at period ends and average year-to-date Condensed Consolidated Balance Sheets (Period End) At Period End (dollars in thousands): | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $165,495 | $83,353 | | Investment securities | $545,821 | $557,221 | | Loans and leases | $1,837,477 | $1,800,856 | | Total assets | $2,698,575 | $2,584,616 | | Non-interest-bearing deposits | $558,074 | $533,935 | | Interest-bearing deposits | $1,877,254 | $1,806,885 | | Total deposits | $2,435,328 | $2,340,820 | | Total liabilities | $2,480,663 | $2,380,647 | | Shareholders' equity | $217,912 | $203,969 | Average Year-to-Date Balances Average Year-To-Date Balances (dollars in thousands): | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total assets | $2,645,679 | $2,493,659 | | Total deposits | $2,393,215 | $2,225,354 | | Shareholders' equity | $210,757 | $196,558 | Unaudited Condensed Consolidated Statements of Income Unaudited condensed consolidated income statements detail revenues, expenses, and net income for quarterly and year-to-date periods Condensed Consolidated Statements of Income (Three Months Ended June 30) Three Months Ended June 30 (dollars in thousands): | Metric | Jun. 30, 2025 | Jun. 30, 2024 | | :-------------------------------------- | :------------ | :------------ | | Total interest income | $29,765 | $26,039 | | Total interest expense | ($11,836) | ($10,922) | | Net interest income | $17,929 | $15,117 | | Provision for credit losses on loans | ($300) | ($275) | | Non-interest income | $5,359 | $4,615 | | Non-interest expense | ($14,710) | ($13,616) | | Net income | $6,921 | $4,935 | Condensed Consolidated Statements of Income (Six Months Ended June 30) Six Months Ended June 30 (dollars in thousands): | Metric | Jun. 30, 2025 | Jun. 30, 2024 | | :-------------------------------------- | :------------ | :------------ | | Total interest income | $58,073 | $51,665 | | Total interest expense | ($23,111) | ($21,604) | | Net interest income | $34,962 | $30,061 | | Provision for credit losses on loans | ($755) | ($400) | | Non-interest income | $10,332 | $9,188 | | Non-interest expense | ($29,264) | ($27,306) | | Net income | $12,912 | $9,993 | Selected Financial Ratios and Other Financial Data This section presents key financial ratios and performance indicators, including EPS, profitability, efficiency, and asset quality metrics Selected Returns and Financial Ratios (Three Months Ended June 30) Selected Returns and Financial Ratios (Three Months Ended June 30): | Metric | Jun. 30, 2025 | Jun. 30, 2024 | | :---------------------------------- | :------------ | :------------ | | Diluted earnings per share | $1.20 | $0.86 | | Dividends per share | $0.40 | $0.38 | | Yield on interest-earning assets (FTE)* | 4.77% | 4.58% | | Cost of interest-bearing liabilities | 2.52% | 2.58% | | Net interest margin (FTE)* | 2.92% | 2.71% | | Return on average assets | 1.04% | 0.81% | | Return on average equity | 13.02% | 10.44% | | Efficiency ratio (FTE)* | 61.17% | 66.47% | Selected Returns and Financial Ratios (Six Months Ended June 30) Selected Returns and Financial Ratios (Six Months Ended June 30): | Metric | Jun. 30, 2025 | Jun. 30, 2024 | | :---------------------------------- | :------------ | :------------ | | Diluted earnings per share | $2.23 | $1.73 | | Dividends per share | $0.80 | $0.76 | | Yield on interest-earning assets (FTE)* | 4.75% | 4.55% | | Cost of interest-bearing liabilities | 2.51% | 2.54% | | Net interest margin (FTE)* | 2.91% | 2.70% | | Return on average assets | 0.98% | 0.82% | | Return on average equity | 12.35% | 10.57% | | Efficiency ratio (FTE)* | 61.42% | 67.01% | Other Financial Data (Period End) Other Financial Data (At period end, dollars in thousands except per share data): | Metric | Jun. 30, 2025 | Dec. 31, 2024 | | :-------------------------------------- | :------------ | :------------ | | Tangible book value per share* | $34.25 | $31.98 | | Tangible common equity ratio* | 7.38% | 7.16% | | Non-performing assets to total assets | 0.13% | 0.30% | | Total risk-based capital ratio | 14.72% | 14.78% | | Leverage ratio | 9.16% | 9.22% | Reconciliations of Non-GAAP Financial Measures to GAAP Detailed reconciliations of non-GAAP financial measures to GAAP are provided for transparency, covering FTE net interest income and efficiency ratio - Detailed reconciliations are provided for FTE net interest income, efficiency ratio, tangible book value per share/tangible common equity ratio, and pre-provision net revenue to average assets[43] - These reconciliations show the adjustments from GAAP interest income to FTE interest income, and how non-interest expenses are divided by adjusted net interest income (FTE) plus adjusted non-interest income for the efficiency ratio calculation[43]